200,000 retired state workers’ long-term health care isn’t funded

San Francisco Chronicle

Updated 2:32 pm, Sunday, December 21, 2014

An overlooked and monumental problem isn’t going away, and state Controller John Chiang doesn’t think California can ignore the matter. Health care for nearly 200,000 retired state workers comes with a $72 billion future cost, and Sacramento has set aside virtually nothing to pay the bill.

Chiang, due to change offices next month and become state treasurer, is zeroing in on this financial land mine. The state has a nearly $300 billion pension fund for retirement checks, but it pays medical and dental bills on a pay-as-you-go basis, dipping into the state budget each year.

In years past, that approach worked, but it’s no longer tenable in an era of higher health care costs and longer life spans. In 2001, the bill was $458 million, but it’s jumped to nearly $2 billion this year. The climbing costs have a magnifying effect, with the long-term liabilities for present and future retirees increasing by $7.2 billion this year.

Chiang took a deep dive into the numbers to come up the coverage costs, a measuring job he’s done before. His solution is practical and sensible: The Legislature should begin setting aside money now to meet the rising costs. His suggestion is to pay into a health care pension fund in each of the next five years. Investing the contributions could yield enough to drop the future liability by $20 billion, a significant cut in the overall problem.

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It’s a suggestion that will test Sacramento lawmakers. The state’s surging tax revenues offer a chance to meet the health care gap. But politicians normally want the instant gratification that comes with a new program or expenditure, not a down payment on avoiding a problem that’s years away. A prior effort to answer retirement pension problems produced a modest set of changes.

There’s reason for optimism in this case. In his new office, Chiang will pursue the issue. Also, Gov. Jerry Brown has taken notice of the issue and may address the topic in his combined inaugural and state of the state address.

The money to dent the problem could be in hand. Voters approved Prop. 2 last month, which put a brake on state spending by reserving budget surpluses collected in flush times. Those extra funds may be tapped to pay down long-term bills such as inescapable future health care bills. This could be the right time to face a problem neglected for too long.